The Federal Energy Regulatory Commission is seeking comment on
whether to repeal the Market Behavior Rules it adopted two years
ago to prohibit market manipulation, given that the recently enacted
Energy Policy Act of 2005 provided the Commission with enhanced
authority to police against market manipulation.

The Commission in November 2003, pursuant to section 206 of the
Federal Power Act and section 7 of the Natural Gas Act, amended
all market-based rate tariffs and authorizations for wholesale
power, and all blanket certificate and pipeline sales for natural
gas, to require energy sellers to adhere to strict rules governing
conduct by energy market participants.

The Energy Policy Act, signed into law August 8, 2005, established
a new section 222 of the Federal Power Act, and a new section
4A of the Natural Gas Act, providing the Commission with authority
to prohibit any entity from using or employing "any manipulative
or deceptive device or contrivance" in connection with the purchase
or sale of wholesale electricity or natural gas, and jurisdictional
transmission or transportation services for electricity or natural
gas.

Last month, the Commission issued a notice of proposed rulemaking
to implement this new Energy Policy Act authority, noting it will
simplify the Commission's rules regarding market manipulation,
and provide greater clarity and regulatory certainty for the industry
(Docket Nos. RM06-2, RM06-3 and PL06-1).

"There are significant differences between the anti-manipulation
rules proposed last month and the anti-manipulation provisions
of the Market Behavior Rules. The new rules are broader in scope,
applying to all wholesale power sellers and all wholesale transactions,
and the intent standard is different. For these reasons, it makes
sense to give serious thought to repealing the Market Behavior
Rules. Having two sets of rules barring the same behavior does
not offer more protection to consumers," commented Commission
Chairman Joseph T. Kelliher.

In two companion actions today, the Commission specifically seeks
comment on whether to repeal the Market Behavior Rules, including
Market Behavior Rule 2, which prohibits "actions or transactions
that are without a legitimate business purpose and that are intended
to or foreseeably could manipulate market prices, market conditions,
or market rules" for electricity and natural gas.

There is a different standard of proof required under the Commission's
Market Behavior Rules and the approach embodied in the Commission's
proposal to implement its new Energy Policy Act anti-manipulation
authority.

As directed by Congress, the Commission has proposed to adopt
the "scienter" standard or proof embodied in section 10(b) of
the Securities Exchange Act of 1934, which requires a showing
of intent to deceive, defraud or manipulate. Under Market Behavior
Rule 2, the Commission required a showing that the actions or
transactions "forseeably" could manipulate market prices, conditions
or rules.

There is also a difference in the scope of applicability. The
Energy Policy Act provides the Commission with authority to police
market manipulation by "any entity," including municipally owned
utilities and others not typically subject to Commission jurisdiction,
while Market Behavior Rule 2 applies only to public utilities
with market-based rate and blanket certificate authorities.

The Commission also considered each of the other Market Behavior
Rules and seeks comment on whether the requirements they impose
are either duplicative of other rules or regulations, or can be
incorporated into other rules of general applicability.

"We think that repeal of the Market Behavior Rules will simplify
the Commission's rules and regulations, avoid confusion, and provide
greater clarity and regulatory certainty to the industry," the
Commission said in the two companion orders adopted today, emphasizing
its belief that "repeal of the Market Behavior Rules is intended
to take into account the passage of the [Energy Policy Act of
2005], which has provided the Commission with expanded anti-manipulation
authority, and to simplify and streamline the rules and regulations
sellers must follow, not to eliminate beneficial rules governing
market behavior."

Comments on the two companion orders are due 30 days after publication
in the Federal Register (www.gpoaccess.gov),
and reply comments are due 15 days after that date.